Opportunity Zones

Newly created on January 1, 2018, Congress established the Opportunity Zones program to provide tax incentives for investors to re-invest any unrealized capital gains into OZ’s designated by each state. Explore our ​Opportunity Zones Map​ and how Galvanized Holdings is helping investors take advantage of this unique program below.

Galvanized Holdings Funds make investments in properties and businesses within Opportunity Zone areas. Galvanized Holdings only invests in Opportunities that achieve our risk-adjusted return hurdles without the benefit of the tax incentives… Galvanized Holdings views these tax incentives as significant and material, but requires our investments to “make sense” even without the incentives. The end result is that our targeted, after-tax returns are significantly above those of similar investments outside of the OZ’s, potentially by as much as 2x.

Opportunity Zones Background

● The Opportunity Zones Program is based off of the Investing in Opportunity Act, a bipartisan act introduced to the U.S. House in early 2017.  The bipartisan act was passed and incorporated as a component program of the ​Tax Cuts and Jobs Act of 2017. The Investing in Opportunity Act and subsequent Opportunity Zone Program is designed to encourage long-term investments in designated low-income communities across all U.S. States and Territories.

● A program original proposed by the ​Economic Innovation Group (“EIG”),​ a bipartisan public policy organization founded in 2013.

● Governors from each state nominated low
income census tracts for inclusion in the Opportunity Zone program. Only a limited number of census tracts were included in order to concentrate the capital investment opportunities to encourage meaningful development to take place.

● Opportunity Zone Funds must invest substantially all their capital in operating businesses, equipment, real property located in these designated census tracts.

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Stock Fund vs OZ Fund

The illustrative example allows you to compare the potential after-tax returns of an investment of capital gains in a non-qualified taxable account titled “Stock Fund” compared with an equivalent investment in an Opportunity Zone Fund titled “OZ Fund”. The chart allows you to choose your hold period between 5, 7, or 10 years, your initial investment amount as either $25,000, $50,000, $100,000, $250,000, $500,000 or $1,000,000, and an annualized rate of return between 5% to 15%.

 

Tax Assumptions:

This example assumes a capital gains tax rate of 23.8% (the 23.8% tax is the long-term capital gains rate of 20% plus the 3.8% net investment income surtax for singles earning over $200,000 and couples earning over $250,000). For the Stock Fund, the amount of the initial investment is first reduced by this tax rate before the hypothetical investment. Example, if the initial capital gain used for investment is $1,000,000 then the amount of hypothetical reinvestment into the stock fund would be $762,000 to reflect the 23.8% tax being paid prior to investment. The investment of the $762,000 would then appreciate at the annualized return that you have selected. In contrast, with the capital gains tax-deferral of the OZ Fund, this capital gains tax would not be paid until the investment in the OZ Fund is liquidated or exchanged.

 

Hold Period Assumptions:

The hold period assumptions assume that any investment made is made prior to specific target dates that are laid out below and either stipulated or implied by the Opportunity Zones section of the Tax Cuts and Jobs Act of December 22, 2017.

 

5-Year Hold Period:

The assumptions of a 5-Year hold period assumes that you have made this investment into a Qualified Opportunity Zone Fund “QOZ Fund” on or prior to December 31st, 2021. By making your investment into the QOZ Fund and your investment would receive a tax deferral on prior capital gains tax owed until December 31st, 2026. Also included in the calculations is the benefit from being invested in a QOZ Fund for a minimum of five years for which your original deferred tax liability is reduced by 10% while the remainder is taxed at the assumed rate of 23.8%. The performance of both the stock fund and the OZ Fund compound annually at the rate of return you have selected.

 

7-Year Hold Period:

The assumptions of a 7-Year hold period assumes that you have made this investment into a Qualified Opportunity Zone Fund “QOZ Fund” on or prior to December 31st, 2019. By making your investment into the QOZ Fund and your investment would receive a tax deferral on prior capital gains tax owed until December 31st, 2026. Also included in the calculations is the benefit from being invested in a QOZ Fund for a minimum of five years for which your original deferred tax liability is reduced by 15% while the remainder is taxed at the assumed rate of 23.8% (the 15% tax liability reduction comes from the 10% 5-year benefit and an additional 5% as a 7-year hold benefit). The performance of both the stock fund and the OZ Fund compound annually at the rate of return you have selected.

 

10-Year Hold Period:

The ten-year hold calculations for the OZ Fund assumes that you have made your investment into the QOZ Fund by no later than December 31st, 2019. Secondly this assumes that you have settled your tax liability from the originally deferred capital gain and taken advantage of the 15% reduced tax liability by the required date of December 31st, 2026. The net remaining tax liability is taxed at 23.8% which effectively reduces the net after tax return of the OZ Fund calculations. The remainder capital continues to compound at the selected rate of return. Upon reaching the 10-year hold, all capital gains that have been generated by the investment into the OZ Fund are now eligible for the final benefit of being tax-free distributions. The OZ Fund and the stock portfolio are assumed to be liquidated with the additional capital gains of the OZ Fund being taxed at a rate of 0% while the stock fund is taxed at the assumed rate of 23.8%.

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Eligible Capital

Opportunity Zone Funds can accept capital from ​any ​realized capital gain provided a few criteria are met:

● Capital Gains can come from anything! The sale of stocks, stock options, a business, real estate, cars, and jewelry all qualify

● The capital gain was realized and invested into a Qualified Opportunity Zone fund within 6 months*.

 

 

* There are scenarios where an investor has longer than 6-months to contribute dollars to an Opportunity Zone fund, contact us for more details.

Core Elements

Census tracts that have been designated by each state and certified by the Treasury as Opportunity Zones. Click here to see a map of all of the Opportunity Zones in the US
Opportunity​ ​Funds are certified investment vehicles organized as corporations or partnerships for the purpose of investing in qualified Opportunity Zone assets. Funds must hold at least 90% of their assets in Qualified Opportunity Zone Investments.
Opportunity Zone Investments are limited to equity in businesses, real estate, and business assets that are in a Qualified Opportunity Zone.

Tax Incentives

To encourage investment into these Opportunity Zones, certain incentives are being provided to encourage investors to reinvest their capital gains into these projects. The benefits increase the longer an investor holds the investment.

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